On Wednesday, the Federal Reserve is anticipated to announce a significant reduction in interest rates, with expectations of a 0.25% cut during the upcoming Federal Open Market Committee meeting. Analysts suggest that further cuts may follow, totaling an additional 0.5% reduction before the end of the year. James Butterfill, head of research at CoinShares, expressed confidence in the trend, predicting a total of 0.75% in rate cuts this year, including 25 basis points in October and another 50 in December.
The CME FedWatch tool indicates a near-certain probability—close to 100%—for a 0.25% cut on Wednesday, alongside a similar outlook for a subsequent reduction in December. In line with this sentiment, traders on the crypto-betting platform Polymarket assign a 98% chance to this month’s cut and an 89% probability for the December meeting.
This meeting comes at a crucial time, as geopolitical tensions rise with U.S. President Donald Trump set to meet Chinese President Xi Jinping in South Korea on Thursday to negotiate a new trade deal aimed at reducing existing tensions between the two countries.
In the context of these developments, how will the anticipated rate cuts influence cryptocurrency prices? According to Thomas Perfumo, global economist at the crypto exchange Kraken, the macroeconomic environment is the predominant force driving the current cryptocurrency cycle. He maintains that alongside Wednesday’s expected cut, the market has already factored in another reduction during the Fed’s December meeting.
However, ongoing trade tensions between the U.S. and China introduce a layer of uncertainty regarding the Fed’s monetary policy choices. Tariffs can lead to inflation, which is typically a deterrent against rate cuts. Conversely, they can hinder economic growth by increasing costs and disrupting supply chains, potentially favoring the need for cuts. This duality presents a challenging situation for the Fed as it navigates the contrasting forces of combating inflation while supporting economic growth.
Despite the recent volatility, Butterfill emphasizes that Bitcoin remains largely insulated from these macroeconomic pressures. He posits that the factors triggering current market corrections, particularly the trade tariff announcements, pose a more significant risk to traditional equity markets than to the cryptocurrency space. While Bitcoin recently experienced a 10% downturn, largely due to the liquidation of $19 billion in leveraged positions amidst renewed trade war discussions, its foundational value as an inflation hedge could reinforce its appeal if tensions escalate further.
Currently, Bitcoin is trading around $113,000, reflecting a decline of over 10% from its peak, yet its potential as a resilient alternative currency remains a focal point for many investors. The evolving landscape presents both challenges and opportunities, underscoring the dynamic interplay between global economic policies and digital asset markets.